German economic output rose somewhat in the first quarter of 2024. According to the Federal Statistical Office‘s flash estimate, seasonally adjusted real GDP rose by 0.2% on the previous quarter. It had fallen sharply in the final quarter of 2023, by 0.5% according to revised data. 1 Growth was recorded in the construction sector, in particular, but also in industry and probably in services as well in the first quarter of 2024. This was partly due to favourable weather conditions for construction activity. The previous quarter had seen weather detrimental to construction, by contrast, producing the major swing now seen in construction. In energy-intensive industry, the negative trend did not persist and production picked up substantially. Moreover, the sickness rate was not quite as high as in the previous quarter, which is also likely to have bolstered economic output. In addition, the remaining backlog of orders enabled production to increase in construction but above all in industry, as demand remains weak in both sectors. There was a sharp contraction in new orders for industry from both Germany and abroad in the first quarter of 2024. This is a reflection of the fact that global trade remained subdued and increased financing costs off the back of the interest rate reversal as well as greater economic policy uncertainty dampened domestic investment. Higher financing costs also weighed on new orders in the main construction sector. Private consumers remained unsettled, meaning that their consumption was still sluggish even though their income situation is likely to have improved significantly thanks to a stable labour market and a renewed rise in real wages. The fact that the services sector expanded in spite of this is probably due to growth in sectors more related to industry and business.

Industrial output and exports performed better than had been expected based on the weak demand. After declining in three consecutive quarters and despite a continued weak level of new orders, industrial output rose again in the first quarter of 2024 after seasonal adjustment. This was mainly thanks to energy-intensive economic sectors, which recorded a steep rise in production – especially the chemicals industry. Energy-intensive industry thus saw quarter-on-quarter growth again for the first time since 2021. It may be that, after the heavy burdens caused by the surges in energy costs in the wake of Russia’s attack on Ukraine, a reversal is starting and ushering in a moderate recovery. After all, wholesale prices for gas and electricity have already been significantly lower again for a long time, and the energy supply in Germany is considered to be much more secure again since Germany successfully withstood its second winter without Russian gas supplies. 2 Excluding energy-intensive sectors, however, industrial output only saw a slight increase. Growth in the pharmaceutical and food industries contrasted with declines in output in major sectors such as mechanical engineering and, above all, the automotive industry. A broad-based recovery in industry is therefore yet to materialise. The main reason for this is that demand for German industrial products remains weak overall. According to a survey conducted by the ifo Institute, the share of firms experiencing a shortage of orders rose again in April, to almost 40%. Even though foreign demand is still at a depressed level, real goods exports also picked up markedly in the first quarter in seasonally adjusted terms. The recovery in energy-intensive sectors had an impact here, too. The chemicals industry, for example, increased its exports significantly according to data available up to February. Overall, growth in production and exports came at the expense of order backlogs. According to data available up to February, orders on hand continued to decline.

Commercial investment in machinery and equipment remained weak. At present, there are various factors weighing on private investment in Germany. 3 In addition to a difficult macroeconomic environment, to which subdued industrial activity and higher financing costs are contributing factors, they include increased economic policy uncertainty. Price-adjusted domestic sales of capital goods indicate that investment was weak in the first quarter of 2024. These saw a further distinct, broad-based decline in seasonally adjusted terms. The manufacture of other transport equipment was one exception. In contrast to domestic sales, price-adjusted imports of capital goods went up markedly according to data available up to February. While more machinery and computers, electronic and optical equipment were imported, imports of motor vehicles remained virtually unchanged.

Growth in construction output and construction investment was probably mainly due to weather conditions. Following a sharp decline in the previous quarter, construction output recovered in the first quarter and returned to the level recorded in the third quarter of 2023 after adjustment for seasonal variations. Both the decline and the subsequent increase were probably heavily influenced by unseasonal weather patterns. This is suggested by the ifo Institute’s surveys on hindrances to construction activity due to weather conditions. The economic dynamics of building construction and civil engineering continued to decouple. The building industry suffered from continued weak demand in housing construction and only saw a slight increase in output, whereas civil engineering probably benefited from infrastructure measures, seeing much stronger growth. 4 Other construction activities (such as fit-out) also expanded significantly. Averaged over January and February, new orders in the main construction sector as a whole declined again compared with the previous quarter. They were thus 20% lower than the level of the fourth quarter of 2021. The largest decline was in housing construction, where the interest rate rise probably had an especially significant impact on demand. Surveys by the ifo Institute also point to persistently weak demand. In April, for example, the share of firms in the main construction sector experiencing a shortage of orders remained close to the recent peaks of around 40%.

Private consumption remained sluggish, but activity in the services sector probably increased in spite of this. Key pillars of private consumption, such as the stable labour market and real income growth, remained in place in the first quarter as well. However, consumers remained highly unsettled, which dampened their propensity to buy. 5 The new registrations of private vehicles recorded by the German Association of the Automotive Industry indicate that far fewer cars were purchased. Part of the reason for this was probably that subsidies for private owners of electric vehicles expired at the end of 2023. Price-adjusted retail sales were also below the previous quarter’s level. By contrast, they were up somewhat in the accommodation and food services sector according to data available up to February. Despite a lack of stimulus from consumer-related sectors, the services sector looks to have grown significantly, as indicated by services production, which rose according to data available up to February. The slight improvement in industry is likely to have been a supporting factor. There were increases, for example, in price-adjusted sales in wholesale trade and production in transportation and storage. Other business-related service providers also saw significant growth.

The German labour market was very stable in the first quarter of 2024, too. Employment growth continued on a muted positive track. Over the course of 2023, enterprises largely retained their staff despite the economic slowdown and staff levels were even increased in many services sectors. However, the increase in the first quarter of 2024 was not strong enough to fully absorb the number of workers available to the labour market, which is rising as a result of immigration in particular. Registered unemployment therefore increased as well, though likewise by only a marginal amount. Leading indicators suggest that this pattern is unlikely to change markedly over the next few months. Even if economic developments turn more positive, it is likely that greater use will be made of current staff in the first instance. The currently depressed level of working hours would then recover.

Employment in Germany rose marginally in the first quarter of 2024. Total employment rose by 38,000 persons, or 0.1%, compared with the final quarter of 2023, when adjusted for average seasonal fluctuations. The declining trend in self-employment persisted, and exclusively low-paid part-time employment remained virtually unchanged. By contrast, the number of jobs subject to social security contributions continued to increase slightly. 

As in the past year, the overall slightly positive employment growth indicates a sectoral dichotomy. The Federal Employment Agency’s initial estimates of employment subject to social security contributions by economic sector currently go as far as February 2024. Staff levels were reduced significantly in temporary agency work, which enables many enterprises to adapt quickly to changing demand. This was the case in the manufacturing sector, in particular. However, core staff levels were also reduced on a small scale in the manufacturing and construction sectors. This weak, cyclically-induced development is, however, obscured by structurally rising demand for labour, especially in areas of basic public services – human health and social services, the public sector, energy and water supply, and education and training. Furthermore, additional staff were also recruited in other services sectors, notably in the area of qualified business-related services and in the accommodation and food services sector. 

Short-time work for economic reasons was used somewhat more frequently at the start of the year as another way of adjusting to weak demand. Although the increase is moderate, the number of short-time workers exceeded 200,000 for the first time since June 2022, according to the Federal Employment Agency’s initial estimate for February. At that time, the last arrangements making it easier to use short-time work during the pandemic were phased out. In February 2024, around 0.6% of employees subject to social security contributions were on short-time work for economic reasons. In line with the economic situation, 85% of these employees were working in manufacturing enterprises. 6 In all other sectors, short-time work has played only a very minor role up to now. The slowly rising trend could persist in the short term, as the number of notifications of short-time work for economic reasons also remained at the somewhat elevated level up to April 2024. Here, too, these notifications are mainly from the manufacturing sector.

Registered unemployment increased of late, though only very slowly. Averaged over the first quarter, a seasonally adjusted 2.71 million persons were registered as unemployed, around 24,000 more than in the final quarter of 2023. The unemployment rate climbed by 0.1 percentage point to 5.9%. A further 10,000 unemployed persons were recorded in April, with the unemployment rate remaining unchanged due to rounding. Compared with the same quarter of the previous year, there were roughly 186,000 more unemployed people in the first quarter of 2024. A little over half of this increase was attributable to those covered by the statutory unemployment insurance scheme, which is influenced by cyclical factors (+100,000). However, some of the increase in the number of basic welfare allowance recipients is likely also due to the period of economic weakness which has gone on for two years now. The number of long-term unemployed persons went up, and some of them will have lost their entitlement to insurance benefits after such a long period. The year-on-year increase in unemployed refugees from Ukraine and from the main countries of origin of asylum seekers is relatively small due to ongoing labour market integration. This increase cannot fully explain the rise in the number of unemployed receiving the basic welfare allowance.

Leading indicators suggest the German labour market will see no radical changes in the coming months. Total employment is still expected to grow only marginally, as indicated by the IAB Labour Market Barometer in particular. However, there is no sign of any improvement in the manufacturing, construction and trade sectors, which have been hit especially hard by weak economic developments. Employment could continue to decline somewhat in these sectors. This can be seen in the sector breakdown provided by the ifo Employment Barometer, which is based on employment plan surveys for trade and industry. Even if the slight signs of economic recovery were to intensify, the need to take on more people is likely to remain subdued for the time being. This is because companies largely retained their core staff during times of lower utilisation in the recent past. In addition, average working hours in the fourth quarter of 2023 (data are available up to then) were very low and will probably be increased before large-scale plans for recruiting additional staff are put in place. The number of job vacancies reported to the Federal Employment Agency has fallen recently. Even if the number of vacancies is still relatively high, the momentum in posting advertisements for new jobs is comparatively weak. By contrast, the still very long time taken for a vacancy to be filled seems somewhat contradictory at first glance. The difficulty of finding suitably skilled staff indicates a relatively poor fit in the labour market between requirements and labour supply. This may be due to a mismatch in terms of qualifications or region, but also to working conditions or remuneration. The slight increase in unemployment could continue initially. Although the IAB Unemployment Barometer has improved gradually over the past six months, it remains in slightly negative territory. 

Negotiated wages rose steeply in the first quarter of 2024. Including additional benefits, negotiated wages were up by 6.2% on the year in the first quarter, compared with 3.6% in the final quarter of 2023. Both permanent wage increases and large social contribution-exempt inflation compensation bonuses contributed to this considerable wage growth. 7 Even excluding bonus payments, negotiated wages showed stronger year-on-year growth in the first quarter of this year, at 3.0%, than in the fourth quarter of 2023. 

Actual earnings are likely to have risen sharply once again. This is indicated by the substantial increase in gross monthly earnings contained in the Federal Statistical Office’s earnings survey, with data available up to and including March 2024. In a long-term comparison, the relatively strong boost to actual earnings evident since the spring of 2021 is thus being sustained. 

Recent wage agreements point to continued high wage growth. In annualised terms, wage growth ranged from 3.0% in temporary work to up to 10.6% in logistics and freight forwarding, depending on the region. 8 The first regional agreement concluded in retail trade in the northern regions also shows above-average annual wage increases of 5.0% over a term of 36 months. However, employers in the main construction sector rejected the wage deal proposed by the mediator. Negotiated earnings therefore remain unchanged there for the time being. Moreover, there has been no follow-up collective agreement in wholesale and foreign trade since the collective agreements expired in the spring of 2023. The associated months without any year-on-year wage growth dampen the rise in the negotiated wage index for the macroeconomy.

High new pay deals are expected in this year’s pay round. Trade unions’ wage demands currently range from 7% to 15% over a term of 12 months, remaining high by historical standards. There is no sign of the demand for higher wages abating in the new pay rises being demanded since February: trade unions are demanding 12.5% more pay for employees of private and public sector banks over a period of twelve months from June onwards, for example. For workers employed in the cleaning of buildings, they are demanding that hourly wages go up by three euros from January 2025. This corresponds to a rise of 16.7% in the basic wage. The wage increases envisaged by the trade unions are high, especially in services, but a sustained rise in real wages is being pursued in other sectors, too. Although inflation has declined considerably since its peak in autumn 2022, unions remain aware of the accumulated real wage losses of the past three years. In addition, no more temporary, social contribution-exempt inflation compensation bonuses will be awarded at the end of 2024. Permanent wage hikes are now therefore increasingly taking greater prominence. Comparatively high future wage increases are also suggested by the albeit slightly easing widespread labour shortages and the high willingness to strike, which recently enabled unions to achieve an above-average percentage of their demands. 

Price pressures edged up again slightly in the first quarter. In the first quarter of 2024, consumer prices (HICP) rose by a seasonally adjusted 0.8% on the quarter, compared with 0.2% in the final quarter of 2023. The strong and broad-based price inflation for services was the main contributing factor. This was evident both in the case of administered services, for which fees are frequently raised at the turn of the year, for example, and in non-administered services. In addition, the prices of non-energy industrial goods rose somewhat more strongly again than in the fourth quarter of 2023. By contrast, food prices remained virtually unchanged after climbing steeply in the previous quarter. Energy prices fell again, albeit to a lesser extent than in the fourth quarter of 2023. Looking at the year-on-year figure, the disinflation process continued in the first quarter of 2024, but at a much more moderate pace than before. There was thus only a comparatively small fall in the inflation rate from 3.0 % in the previous quarter to 2.7%. Core inflation (HICP excluding energy and food) remained markedly above the headline rate. It went down from 3.7% to 3.4%.

Prices also rose somewhat more sharply in April. After seasonal adjustment, the HICP rate rose by 0.4% compared with +0.2% in March. This was driven by a substantial increase in energy prices, which had fallen in the previous month. One factor here was the expiry of the temporary reduction in the VAT rate on gas and district heating in April. However, food prices were also up more sharply than in March. Prices for services, which had risen significantly since the beginning of the year, lost some upward momentum in April overall. However, rents saw somewhat stronger increases, as in previous months. Non-energy industrial goods became slightly less expensive again, following price developments at the upstream stages. Looking at the year-on-year figures, the inflation rate edged up slightly on balance, from 2.3% to 2.4%. 9 By contrast, core inflation fell distinctly from 3.2% to 2.9% but remained well above the headline rate. It was surprising that prices for package holidays went up steeply, despite Easter falling relatively early. 10

Inflation is expected to rise again in May and could fluctuate at a slightly higher level over the next few months. This is predominantly due to base effects from local public transport, with average ticket prices down sharply owing to the introduction of the “Deutschlandticket” in May 2023. In addition, looking at the year-on-year figures, energy prices are likely to rise again in May and later in the year owing to base effects. Risks to the underlying disinflation process persist overall. Wage growth has exceeded expectations of late and this could mean that the still high price pressure in services will persist for longer.

Economic output is expected to rise again slightly in the second quarter of 2024. The recovery for service providers is likely to continue. Survey results from the ifo Institute for consumer-related services sectors indicate that the recovery could even intensify and spread at the first signs of any impetus from private consumption. Rising real disposal household income is therefore expected to prevail over consumer uncertainty.  Further gains in purchasing power are likely as the labour market is expected to remain robust and wages continue to rise steeply. Energy-intensive sectors could recover moderately in industry. However, for a sustainable recovery in industry, there would have to be a broad-based improvement in new orders, too. There is no evidence of this yet. The brighter business expectations in the manufacturing sector will therefore probably only provide momentum to output from the second half of the year onwards. Demand is still very weak in construction as well and there are no signs of a major rebound yet. The normalisation following the weather effects in previous quarters is also likely to have a dampening effect in the second quarter. By contrast, a further decline in sickness levels could bolster economic output again. Overall, the underlying cyclical trend gradually appears to be gaining some momentum. 

Service providers are likely to provide positive stimuli, as is private consumption. The services sector is expected to grow considerably in the second quarter. Service providers’ business situation improved for the third time in succession in April and business expectations also continued to brighten. The recovery is intensifying, as stimuli are also expected to come from the consumption-related sectors again. This is indicated by the ifo Institute’s survey of the business situation in the consumer-related services sectors of retail and hotels and restaurants, which improved substantially. Households’ greater spending scope could therefore also increasingly filter into consumption spending. There is still no sign of a strong improvement in consumer appetite though. The GfK consumer climate indicator rose for the third consecutive time in April. Income expectations, in particular, were significantly higher and the propensity to purchase edged up slightly. However, the propensity to save also increased. In April, consumers were at least still holding back on car purchases. According to data from the German Association of the Automotive Industry, private car registrations rose on the month but were still well below the average of the previous quarter.

By contrast, industrial activity is likely to remain subdued for the time being. According to surveys by the ifo Institute, the business situation in the manufacturing sector deteriorated in April. Moreover, industrial new orders declined further in March after seasonal adjustment. Excluding volatile large orders, new orders remained almost at the previous month’s level. They continued to drop significantly on average in the first quarter, with demand down from both Germany and abroad. However, there are also signs that a turning point in industrial activity is within reach. Energy-intensive industries could continue to recover, for example. This is supported by the fact that manufacturers of chemical products recorded increased demand in quarter-on-quarter terms for the third time in succession. Furthermore, according to data from the German Association of the Automotive Industry, the number of passenger cars produced rose significantly in April for the third consecutive month. Finally, in industry as a whole new orders from abroad excluding large orders grew steeply in March on the month. This could be a harbinger of a broader revival of demand. According to ifo surveys, short-term export expectations and production plans, as well as business expectations for the next six months, are pointing in the same direction. In April, they were significantly up on the quarter. Overall, however, a major recovery in industry does not appear likely until the second half of the year. 

Deutsche Bundesbank (2024), Balance of payments statistics – Financial account, April 2024.

European Investment Bank (2024), EIB Investment Survey Country Overview 2023: Germany. 

Federal Network Agency (2024), Current status of gas supply in Germany, available at https://www.bundesnetzagentur.de/EN/Areas/Energy/SecurityOfSupply/GasSupply/start.html.

Federation of German Industries (2023), Lagebild im industriellen Mittelstand, Blitzumfrage im Frühsommer 2023, https://bdi.eu.

German Chamber of Commerce and Industry (2024), Foreign investments: Motive of cost savings increasing again, www.dihk.de.

GfK (2024), Consumer climate: Sluggish recovery, press release of 26 March 2024, https://www.gfk.com/press/consumer-climate-sluggish-recovery.

Grömling, M., R. Wiechers and O. Wortmann (2024), Bedeutung von Standortfaktoren und Megatrends für die Investitionen in Deutschland, IW Report 10/2024.

Schnorrenberger, R., P. Schwind and E. Wieland (2024), Forecasting HICP Package Holidays with Forward-Looking Booking Data, Bundesbank, Technical Paper, forthcoming.

von Maltzan, A. and L. Zarges (2024), Der Investitionsstandort Deutschland aus Unternehmenssicht. ifo Schnelldienst, 2024, 77, No 03, pp. 52-58.

Zentralverband Deutsches Baugewerbe (2023), Konjunkturentwicklung Bauhauptgewerbe 2023 – Prognose 2024, www.zdb.de.

ZEW (2023), Shortage of Skilled Workers Threatens Innovation Capacity, www.zew.de.